TMI Blog2009 (3) TMI 391X X X X Extracts X X X X X X X X Extracts X X X X ..... 268/85-CX-6 dated 29-9-94 read with the earlier Circular No. 23/84-CX-8 dated 29-5-84, providing for determination of the assessable value in such cases by taking recourse to Rule 8 on the basis of the FOB price of the identical or similar goods is not in accordance with the provisions of sub-rule (2) of Rule 8 - Extended period under proviso to Section 11A(1) of the Central Excise Act, 1944 is available to the Department in respect of both the show cause notices for the recovery of the short paid duty - While UTL are liable for penalty under Section 11AC of Central Excise Act, other noticees are liable for penalty under Rule 209A of the erstwhile Central Excise Rules, 1944/Rule 26 of the Central Excise Rules 2001-02; - Second SCN on same facts but for different priod – SCN issued reportedly for later period only because of delay on part of assessee - We are of the view that extended period is applicable even for the second show cause notice. - E/5511-5515/2004 - 233-237/2009-EX(PB) - Dated:- 24-3-2009 - Ms. Jyoti Balasundaram, Vice-President and Shri Rakesh Kumar, Member (T) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 3(1) of the Central Excise Act. 1.2 The provisions of the Exim policy also provide for advance DTA clearance and from the records, it is seen that after starting the manufacturing operations in 1994, UTL till July 1997, in addition to utilizing their normal DTA quota also made DTA sales against advance DTA quota with the approval of the Development Commissioner. However, during the period of dispute i.e. during the period from August 1997 to March 2002, all the DTA sales of UTL are of the goods which are claimed by them to be 'rejects' within the quota of 5% of FOB value prescribed under the exim policy. 1.3 The Central Excise officers of Nagpur, Central Excise Commissionerate, on receipt of intelligence that UTL are clearing prime quality goods as 'rejects' into DTA and that too by under declaring their value, started investigation into this matter and after completing the investigation, a show cause notice dated 13-8-02 was issued to UTL, UIL, Shri Narendra Kumar - Chairman of UTL, Shri B.K. Dalmia - President of UTL and Director of UIL and Shri Samir Ghosh - Director of UTL, making allegations that prime quality fabrics have been cleared into DTA in the guise of 'rej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal No. 45-46/04 dated 5-7-04 by which the Commissioner upholding the allegations against the noticees has held that - (a) the transaction value declared by UTL for all wool and blended fabrics cleared by them into DTA from August 1997 to March 2002 period are not acceptable in terms of Rule 4(3) of Customs Valuation Rules and the values are to be rejected under Rule 10A ibid and are to be determined by taking recourse to Rule 7 ibid in the manner mentioned in the show cause notices; (b) the so called rejects - 8,05,904.59 linear metres and 6,6382.90 linear metres of poly wool, all wool and silk wool fabrics cleared during period from August 1997 to March 2002 are to be charged full Central Excise Duty under proviso to Section 3(1) of Central Excise Act by denying the benefit of Notification No. 2/95-C.E., dated 4-1-95, as amended and has confirmed the demand of Central Excise Duty amounting to Rs. 24,62,28,055/- against UTL, which is the short paid duty in respect of clearances of all wool/blended fabrics cleared into DTA during period from August 1997 to March 2002, under proviso to Section 11(1) of Central Excise Act, 1944 along with interest on this duty at the applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to sister concerns or inter-related concerns or where there are other reasons to believe that the invoice price does not represent the true transaction value) recourse may be taken to determine the assessable value, as indicated in the Board's Circular No. 23/84-CX-6. As per the Board's Circular No. 23/84-CX-6, the assessable value of excisable goods cleared into DTA by a 100% EOU, for the purpose of calculating the custom duty, may be determined under Rule 8 of the Customs Valuation Rules, as Section 14(1)(a) of the Customs Act, 1962 and other Valuation Rules may not apply to the goods produced in such 100% EOUs and allowed to be sold in India and that while determining the assessable value of the goods under Rule 8, the factors like sale (invoice) price of the goods under assessment, sale price of other consignments of identical/similar goods cleared from the EOU or other EOUs into DTA at some other time, export price of identical/similar goods exported by the EOU or other under EOUs etc. may be taken into consideration. Therefore, as per the Board's Circular dated 29-9-94 read with the earlier Circular No. 23/84-CX-6 dated 29-5-84, the assessable value of the goods cleared by 10 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayable in India by the reasons of importation or sale of the goods. In this case, neither the price for sale in greatest aggregate quantity had been adopted nor the deductions which are to be made as per the Rule 7 have been made from the sale price of the UIL. (6) For the period prior to 16-9-99, the duty payable is 50% of only the aggregate of the duties of Customs chargeable under Section 12 of the Customs Act, 1962 and not the aggregate of the duties customs chargeable under Section 12 of the Customs Tariff Act and any other law for the time being in force. In other words, for the period prior to 16-9-99 duty chargeable would be only 50% of the basic Customs duty not the aggregate of the basic custom duty chargeable under Section 12 of the Customs Act, 1962 and the AED (GSI) chargeable under Additional Duties of Excise (Goods of Special Importance) Act, 1957 and AED (TTA) chargeable under Additional Duties of Excise (Textile Textile Article) Act. In this regard, reliance is placed on the judgment of the Tribunal in the case of Fabworth (India) Ltd. v. CCE, Nagpur reported in 2002 (143) E.L.T. 663 (Tri. - LB) reaffirmed by the Tribunal in the case of Modern Denim Ltd. v. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1-99 to the Jurisdictional Central Excise Superintendent, (b) Letter dated 21-5-99 of the Superintendent Central Excise asking for figures regarding the clearances of rejects and the letter dated 25-5-99 of UTL giving the required figures, and (c) Letter dated 16-6-99 of Superintendent Central Excise to UTL with regard to under valuation in respect of goods rejects to UIL and the UTL's reply dated 13-6-99 to the Department denying this allegation. From this, it is clear that the clearances of rejects were with the permission of the Department and the questions raised by the Department with regard to value had been replied to by UTL in the year 1999. Therefore, the show cause notice dated 13-8-02 for the period from August 1997 to June 2001 is also time barred as the extended period under proviso to Section 11A(1) is not applicable. 2.2 Shri L.P. Asthana, Advocate, the learned Counsel for the Department made the following submissions:- (1) UTL's were clearing prime quality fabrics into DTA in the guise of rejects. In this regard there is ample evidence as discussed by the Commissioner in his findings in para 25.1, 25.2, 25.3, 25.4 and 25.5 of the impugned order. (2) As per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not rejects, these clearances were in contravention of the provisions of the exim policy and hence not only these goods were liable to confiscation, but the same would not be eligible for concessional rate of duty under Notification No. 2/95-C.E. For the same reason, the price being charged by UTL for sale of goods to UIL would also be suspect and cannot be accepted as, true transaction value. Besides this, since UTL and UIL are 'related persons' within the meaning of this term, as defined in Rule 2(2) of Customs Valuation Rules, 1988 in as much as during 1998-1999 and 2000, M/s. Aviante International Limited are Overseas Corporate Entity, was holding 16% equity shares of UTL and 11.66% of the equity shares of UTL and since throughout the period of dispute UTL and UIL were so associated in the business of one another that UIL was sole sale distributor of UTL and UIL were also controlling the operations of UTL, the transaction value price of UTL in respect of sales to UIL cannot be accepted as true transaction value under Rule 3 read with 4(1) of the Customs Valuation Rules and, therefore, the same has to be determined by sequential application of Rule 5, 6, 6A, 7 8 ibid. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 12 of the Custom Act, or any other law, for the time being, in force on the like goods produced or manufactured outside India and imported into India. Thus, the Tribunal's judgments in the cases of Fabworth India Limited (supra) and Modern Denim Ltd. v. CCE (supra) are of no relevance. (6) Since in this case UTL UIL and other noticees have committed a fraud by evading huge amount of Central Excise Duty by clearing prime quality fabrics as rejects, extended period has been rightly invoked in both the show cause notices and for the same reason, while UTL have been rightly under Section 11AC of Central Excise Act, 1944, other noticees have been rightly penalized under Ruled 209A of the Erstwhile Central Excise Rules 1944 of Rules 26 of Central Excise Rules 2001-02. (7) On issue of suppression of facts, Shri Asthana also emphasized on an opinion dated 10-11-98 from tax consultant placed in file No. 45 seized from the office premises of UTL and referred to at page 15 of the impugned order-in-original which shows that a tax consultant had advised UTL that the price being charged by UTL from UIL in respect of sale of the goods cannot be adopted as transaction value as the tw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e never stamped as rejects at any point of time. This is clear from the statement dated 27-3-01 of Shri Avinash Gothmare, Sales Coordinator of UIL, statement dated 27-3-01 of Shri Raj Chaturvedi, G.M. (Commercial) of M/s. UTL, statement dated 23rd and 26th November 2001 of Shri S.K. Dalmia, President of UIL and CEO of UTL. We also find that Shri A.B. Banerjee, Sales Assistant of UIL in his statement dated 27-11-02 has stated that on receipt of orders, as per the directions of the Supervisors he used to fill up the order forms and issue the same to Shri B.S. Chauhan, Deputy Manager (Folding) of UTL to arrange the packing of ordered goods from the factory stock, that he used to follow up progress of packing-whether the matching shade has been found or complete length is available or not, that in case if the order is received is for bulk quantity and the same is not in stock either at the mill of UTL or in the godown of UIL, then he used to enquire from the Gray department of UTL about the availability of grey fabric of the same quality and its processing and that the goods being sold by UIL were of prime grade which were of excellent quality and that fabrics of certain qualities (abo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssible for a 100% EOU to supply a specified quantity of a particular variety of fabric against an advance order as reject. Another very important fact noticed is that there is huge difference between the figures of rejects mentioned in the statutory records and the actual quantity of rejects based on the internal records of UTL, which shows that the figures of rejects have been inflated. For example during January 2000 and February 2000, while as per statutory records the rejects were declared as 15852M and 22070M, as per the Folding Department's record, the actual rejects were 209.40M and 204M respectively. This is a clear evidence of inflating the figure of rejects for which the Appellants have not given any explanation. 3.2 As against the above evidence produced by fee Department, the appellants have not produced any evidence in support of their claim that the goods being cleared by them into DTA were actually rejects, that is the goods which were having some manufacturing defects because of which the same could not be exported. In view of these circumstances, we uphold the Commissioner's finding that the goods being sold by UTL into DTA to UIL were not rejects. Since these go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st in the business of each other and the price is the sole consideration for sale or offer for sale. However, sub-Section (1A) of Section 14 provides that subject to the provisions of sub-Section (1), the price referred to in that sub-Section in respect of imported goods shall be determined in accordance with the Rules made in this behalf. The Customs Valuation Rules, 1988 prescribe the method for determining the assessable value of imported goods and Rule 3 of the Valuation Rules provides that for the purpose of these Rules, subject to the provisions of Rule 9 10A, the Value of the imported goods shall be the transaction value and if such transaction value cannot be determined the value shall be determined by sequentially applying Rule 5 to 8 of these rules. Sub-rule (1) of Rule 4 of these Valuation Rules defines transaction value of imported goods as the price actually paid or payable for the goods when sold for export to India and adjusted in accordance with the provisions of Rule 9, and sub-rule (2) of Rule 4 enumerates the conditions subject to which the transaction value of the imported goods shall be acceptable, one of the condition being that the buyer and seller are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods to various other wholesale dealers. The department's allegation is that the price at which UTL sold the goods declared as 'rejects' to UIL is not true transaction value as UTL and UIL are 'related persons' and prime quality goods are being sold in the guise of rejects and on this basis invoking Rule 4(2) and Rule 10A, the Department has rejected the transaction price of UTL and has proceeded determine the assessable value of the goods by applying Rule 7 by detective method on the basis of price at which UIL were selling the same goods to various wholesale buyers. The appellant's contention is that even if UTL and UIL are treated as 'related persons', application of Rule 7 is incorrect and that in such a situation in accordance with the Board's Circular No. 268-85-CX-8 dated 29-9-94 readwith Circular No. 23/84 dated 29-5-84, the assessable value must be determined on the basis of the FOB price of export of the identical goods. After carefully considering the rival submissions on this point, we are of the view that without going into the question as to whether UTL and UIL are 'related persons' within the meaning of this term, as defined in Rule 2(2) of the Valuation Rules, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inition of the transaction value given in Rule 4(1) of the Valuation Rules defines the transaction value as the price actually paid or payable for the imported goods when sold for export into India. When a 100% EOU is treated on the par with the foreign supplier, the sales to the domestic tariff area cannot be treated as on par with export sales to other countries. We, therefore, hold that the Board's Circular prescribing the determination of DTA sales on the basis of the FOB prices of the export of the similar or identical goods are not in accordance with the provisions of sub-rule 2 of Rule 8 and hence as held by Hon'ble Supreme Court in the case of CCE, Bolpur v. Ratan Melting Wire (supra) such instruction is not binding on the Departmental Officers. The Appellants have cited Tribunal's judgment in case of Tata Coffee Ltd. v. CCE, Hyderabad reported in 2004 (168) E.L.T. 460 wherein, in respect of dispute as to whether the assessable value of the goods cleared by M/s. Tata Coffee Ltd., a 100% EOU, into DTA should be the DTA sale price or the FOB price for export, the Tribunal held that the FOB price for export would be the correct assessable value. But this judgment is based on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egations of fraud, suppression of fact, etc. against the appellants. From, the records of this case, it is seen that investigation into this matter had been initiated sometime in September, October 2001 and on completion of investigation in August 2002, the show cause notice dated 13-8-02 was issued. Since w.e.f. April 2001, UTL had stopped the sales of fabrics to UIL, the show cause notice was to be issued for the period from August 1997 to March 2002 but since at the time of issue of the first show cause notice, the figures of clearance only upto June 2001 were available and UTL in spite of being asked repeatedly since April 2002 for furnishing the data of their sales to UIL for July 2001 to March 2002 period, did not furnish the same, the show cause notice dated 13-8-02 was issued only for period from August 1997 to June 2001. Subsequently when UTL submitted the required information regarding the sales of fabrics to UIL for July 2001 to March 2002 period, the second show cause notice dated 21-7-03 was issued for the remaining period from July 2001 to March 2002. 5.1 So far as the first show cause notice dated 13-8-02 is concerned, since, as discussed in para 3.2 above, UTL in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, show cause notice for recovery of short levied/short paid duty for the subsequent period cannot be issued by alleging wilful statement, fraud, suppression of facts etc. on the basis of the same set of facts. In the case of Nizam Sugar Factory, first show cause notice for recovery of short paid duty for the period from February 1978 to September 1982 had been issued on 28-2-84 invoking extended period by making allegation of wilful misstatement, suppression of facts etc. and subsequently a second show cause notice dated 16-7-87 was issued for the subsequent period from October 1982 to March 1987 on the basis of same set of facts making allegation of wilful statement, suppression of facts, and it is in this background that Hon'ble Supreme Court held that the second show cause notice could not be issued by invoking extended period on the basis of same set of facts. The facts of this case are different. There is no dispute about the fact that during the period from August 1997 to March 2002, the appellants have committed a fraud for evasion of duty by clearing prime quality fabrics as rejects and the show cause notice for the entire period would have been issued on 13-8-02, had UTL ..... X X X X Extracts X X X X X X X X Extracts X X X X
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